Real-time data helps LPG traders manage an unpredictable market

Today’s energy trading market has the potential to be more volatile and requires traders to have access to real-time data to make quick and accurate trading decisions to safeguard against the volatility of liquified petroleum gas (LPG).

Various factors influence energy trading; critically, the irrevocable movement toward an environmentally-friendly power system that includes both traditional renewable energy sources along with more climate-friendly fossil fuels is a primary driver. LPG, in particular, leads this category.

Supply and demand

Driven by the desire to cut carbon emissions, LPG is becoming increasingly attractive to consumers for use in the home, transportation and business. LPG is also the preferred alternative automotive transportation fuel. Autogas is the most accepted alternative fuel in the automotive sector, with more than 25 million vehicles operating worldwide, according to the Propane Education and Research Council. LPG is also increasingly being used as a marine fuel.

There have already been wide repercussions on the global LPG market resulting from the sharp rise of U.S. LPG exports and prices. Therefore, existing pricing mechanisms may come under intense pressure from increased U.S. supplies. With these emerging trends reshaping the supply and demand dynamics, leading trading companies are under pressure to rethink their business models, giving greater weight to risk assessment in their management strategies.

This market dynamic is forcing organizations to assess their exposure to risk. They will inevitably look for other areas of energy to trade, rather than focus on the more traditional energy trading products such as oil and coal.

Market outlook

With more available LPG, and with an increase in demand, there are more opportunities for trading companies to profit from this now valuable commodity.

While the LPG market is not as advanced or as liquid as the oil market, it is not risk-free. Although LPG has been traded for decades, with the recent U.S. production boom and the increased demand from Asia, larger trading houses are poised to enter the LPG market on a larger scale and use their understanding of risk to their benefit.

Recently, demand in the domestic sector surged because of mass household conversions to LPG from biomass and liquid fuels in India and Indonesia, according to the WLPGA.

Globally, autogas has continued to grow with decreases in some established markets offset by growth in new developing markets, such as Eastern Europe and Central Asia. In 2017, LPG for power generation emerged as a new segment with potential for high-volume consumption. Cooperation with existing partner organizations has strengthened in 2018, while new partnership agreements have been forged. According to the WLPGA report, consumption looks set to grow across all sectors — driven by lower prices.

Minimizing risks, maximizing profit

In a high-risk and rapidly changing market, access to real-time actionable data allows traders to minimize their risk and maximize profit while safeguarding against the volatility of LPG. With the variables involved in gaining profit from the volatile LPG sector, market participants are turning to energy trading and risk management (ETRM) software to allow traders to access insightful and ready-to-view data on volume, trades and position. From trade capture and position management to risk assessment, accounting and compliance, ETRM solutions are vital to the success of businesses that generate and trade power.